4 nov SP

Last week the S&P 500 Future remained resilient despite finding itself under some selling pressure following the Fed's warning that the recovery was still waning. On Friday the Dec contract rallied strongly closing out the week just shy of recent highs at 1143.25. This week we will see a lot of data released including the latest consumer confidence data out of the US and GDP numbers from both sides of the Atlantic.

Thoughts from the trading floor

From a technical perspective equity markets continue to look strong. Last week the S&P 500 re-tested the neckline of the large inverse head and shoulders formation and held above it causing a strong rally the following day. This will be a very encouraging sign for bulls as the technical break still is valid and the target remains the yearly highs. This does not spell disaster for technical bears yet and this week will likely prove key. If we were to see the neckline fail to hold this week an aggressive sell off may follow as many bulls will look to hastily exit newly formed longs. Currently the neckline exists at 1120.00 a price area that as a result could prove key over the next few trading sessions.

Last week the Fed failed to extend the QE program but gave a clear indication that such a move is in the pipeline. This subtle shift in language was enough to provide the equity markets with a sizable lift in the short run, a move that was quickly retraced as fears of a downgrade in the growth outlook took hold. On Friday evening Bernanke further talked down the economy warning of a slower than anticipated recovery while reiterating that the Fed were prepared to provide extra stimulus if required. These most recent comments highlight how important fundamental data releases  are becoming to the markets. This week we have a packed calender will the latest GDP number out of the US perhaps the most important.

This week we will also continue to keep an eye on the European peripheral nations in light of recent concerns. It is worth considering that 3 months ago Moody's said they would be reviewing Spain's AAA rating and that they would post their results within the quarter. That gives them three more days, as a result we expect to see Spain downgraded this week.

Important events this week.

• Tuesday: GDP (UK), Consumer Confidence (US)
• Thursday: GDP (F,US), Chicago PMI
• Friday: Michigan Confidence, ISM Manufacturing (US)

Bull View

Bulls will be keen to take advantage of the recent technical break and will be targeting yearly highs. They need to avoid any macro shocks if they have any hope of such a move.

Bear View

Bears now find themselves under extreme pressure despite the deteriorating data in the US. The technicals currently look stacked against them, this is something they will have to overcome this week.

Futex View

We continue to back the bears and believe the recent rally provides a good selling opportunity despite the current technical strength. This week data releases will likely prove very important for our medium term outlook.

The Euros ascent over the last 2 weeks culminated in a move above the 1.3400 handle yesterday. Having stalled around the 1.3100 handle prior to the FOMC policy decision on Tuesday, the market interpreted the Fed’s actions to be bearish for the USD causing it to sell-off sharply against most of its major pairs.

Thoughts from the trading floor

The Euro is trading just below the 1.3400 handle today, having made 1.3443 highs yesterday. Technically, we have seen a slight retardation of the medium term bearish outlook as it has traded and closed above the 1.3336 highs made in August. The short term picture has turned bullish. If the market continues to hold above the 1.3336 level, bulls will target a test of the 1.3500 handle, which should coincide with the 50% retracement of the move lower seen this year. Medium term bears will need to make their last stand there. If short-term bears are to regain any traction in the market, a close back below the 1.3336 level followed by a break below the 1.3130-61 support area will be necessary soon. With the tide firmly against them at the moment, the market will have a strong upward drift anytime it fails to push lower.

The Federal Reserve effectively targeted the USD at the FOMC decision on Tuesday. By committing to asset purchases should the economic conditions warrant such action, and at the same time admitting that they have started to see deflationary pressures on the economy the Fed were able to verbally intervene on the USD. The quantitative easing policies being carried out by the US Federal Reserve are themselves interventions to weaken the USD. Traditionally, during times of economic problems governments have attempted to export themselves out of trouble by weakening their currencies by either direct interventions or carrying out policies which artificially weaken the currency. We have seen recently that the Japanese intervene on their currency to help their exporters, and the weaker Euro for the best part of this year has helped German economic data pick up markedly, particularly since June. Invariably, history has shown us that protectionist policies have generally worked against the protagonists and lead to further problems down the line.

Bull View

The bulls will look for the market to stabilise above the 1.3336 level before mounting a challenge for the 1.3500 handle. A break above here could then set the wheels in motion for a move back to the 1.4000 handle.

Bear View

The bears will need to protect the 1.3500 handle, and make their last stand here. If they can force a day close below 1.3336 today, it may set the cat amongst the pigeons. They will also look for the Spot USD Index to recover the 80.312 level before they can be reassured that some of the bearish USD sentiment has abated at least temporarily.

Futex View

We favour the medium term bears below the 1.3500 handle, although are wary of the short-term technical outlook with regard to the bears.

The Crude Oil Market has struggled to hold any ground last week. NYMEX Crude Light futures remained under pressure falling back below the $75 mark, giving back previously gained ground. Which is in stark contrast to equity futures that remained strong.

Thoughts from the trading floor

In the technical perspective the market has fallen back within previous range bound value area, which is marked at $75.60 to $72.63. It appears that current momentum is still firmly in the hands of the bears; with a strong chance of a retest of the trading range lows of $72.63. If sellers are able to break this level they will be targeting $71.52 support and then Septembers lows of $70.77. The choppy trade recently has reflected the higher levels of uncertainty creeping into the market. Bulls will be disappointed that they were unable to hold any of their recent progress last week. This week they will look to progress away from their lacklustre efforts and counter recent bearish gains. Bulls will be looking to provide support at $72.63 and looking to advance back towards $75.60, this level will act as an upside trigger point for a more dynamic drive higher.

Last night the American Petroleum Institute reported that US oil inventories posted a hefty rise of 2231k barrels last week. This compares to the analyst estimate for the DOE number of  -2489K barrels. The API gasoline rose 2422K, as opposed to the estimate for the DOE number of -694K. With such a divergence between the DOE estimates and the API number, we anticipate that a large negative number will shock the market given the recent surplus in oil and gasoline levels.

The higher inventories have also made Nymex oil for near- term delivery less expensive than oil in future months leaving the market in a contango condition. This can be seen in part by reluctance in the refining sector to buy spot crude given current high product stocks. Despite last weeks slight divergence of the Oil-Equity correlation the market is still looking for some good clear economic news to prompt further economic recovery and increase oil demand.

Bull View

Bulls will be looking to hold $72.63 and drive the market back towards $75.60 and catch back up with the currently strong equity market, reconfirming the Oil-Equity positive correlation.

Bear View

Bears have the upper hand and will be looking to bypass key support at $72.63 and have another test of the daily double bottom at $71.09 - $70.77.

Futex View

We are currently bearish will be selling rallies, however will are very conscious of the choppy volatile market conditions and will be prudent on are entries.

The USD/JPY has trended gradually lower since May. This has been partly in response to the choppy volatility seen in risk trades since that period and the steadily worsening of the macro-economic outlook of the US, which has resulted in a broad downtrend in the USD against low yielding currencies.

Thoughts from the trading floor

The USD/JPY is currently trading around the 85.00 mark. This low coincides with the lows made last year in November. Thus technically, it may be forming a potential double bottom pattern. However, the failure to make a decisive bounce from this mark should trouble the bulls. A firm break and close above the 86.00 handle will be required within the coming 2/3 days in order to prevent a rout of those long leaning on the 84.80-85.00 level. If the market is able to break below here, it targets the multi-decade lows at 79.92. Suffice to say, there will be a lot of interest around these levels as a bounce from here followed by a yearly close above the 100.00 mark may be the catalyst for a move to the 125.00 handle over the course of the next year or two.

A strong Yen is seen as a major drag for Japanese exporters, the major industry of the country. Therefore sharp rises in the currency tends to brew up speculation in the market of possible intervention by the Japanese government to weaken the currency. With the market currently sitting around major lows, the chatter has increased steadily over the past days causing some intraday volatility in the USD/JPY. The Japanese Govt. has previously acted to stem the rise in the Yen and therefore this cannot be ruled out. Although we have already seen this year, with the Swiss Franc, government intervention failed to stem the medium term rise in that currency despite the sharp short term moves seen in the aftermath. Thus any long trades placed around the 85.00 to take advantage of possible intervention shouldn’t be expected to be a major medium term game changer for the market. In fact intervention around these levels may hasten the potential for a move to the multi-decade low at the 79.90 level.

Bull View

The bulls will look for a potential double bottom formation around the 84.80-85.00 level. A firm close above the 86.00 may result in an extension towards the 88.00 mark. If this fails, bulls will then look to re-establish positions around the 79.90 level. This level will be crucial for the very long term investors.

Bear View

The bears will look at the current downtrend and target the break of the 84.80 level. If bears can get the market through the 79.90 level, we may see some real panic in the markets and from the Japanese government.

Futex View

We favour the bulls. On the medium to longer term basis markets have a tendency to over-extend. A short-term bounce from the current level to the 88.00 in the coming 2 weeks cannot be ruled out. Also, considering that the market has been on a multiyear downtrend, we would favour attempting longs around the 79.90 level for a long term bet that the market may rise over the coming year or two towards the 100.00 value area.

The Oil market has deteriorated rapidly over the last week with the market seeing a $8 drop. This price drop was also mirrored by declining equity market.

Thoughts from the trading floor

The technical perspective appears bearish in the short term, with the intense sell-off forcing out any remaining buyers from the previous week’s upward breakout. The market does appear to have found some temporary support at $74.86 to $75.21. However with such strong downward pressure and momentum indicators firmly supporting sellers there is scope for additional declines. If $74.86 breaks the next key level lies at $74.50, worst case scenario would be a full decline to July’s low of $71.09. This level is expected to be meet by strong buying. Buyers have a lot of work to be done and they are unlikely to regain any ground above $79.38. It appears likely that there will be a small consolidation period in the market and the potential for a continuation pattern. This range is likely to build between $74.86 and $76.77

Last night the American Petroleum Institute reported that US oil inventories posted a gain of 5866K barrels last week. This compares to the analyst estimate for the DOE number of -2988K barrels. The API gasoline also rose 2026K as opposed to the estimate for the DOE number of 409K. With such a large discrepancy between the DOE estimates and the API number we expect the DOE release today to show a number outside of its expected range and provide a good trading opportunity.

The equity markets will once again take dominance over Oil market direction, as all eyes will be looking to see if global economies can continue to recover. Equity markets are entering a pivotal time where current outlooks and recent US economic data remain mixed. If equities rise it is a clear sign the economy could be still expanding, leading to increased demand. This would lead to a dollar decline. The fall of the dollar makes dollar-denominated crude cheaper for many buyers, primary supporting the market. However if the ‘double-dip’ scenario plays out many analysts predict a possible $65 target by the end of the year.

Bull View

Bulls will be picking up the pieces of their recent defeat and will try and look for support above $74.86. If achieved they will be looking to claw back recent losses to a more stable support price region of $76.50, where they can recapture some fallen territory.

Bear View

Bears completely rejected the previous drive up to $83.98; this full reversal has left the ball firmly in their court. They will be looking to press home the advantage and trigger a deeper sell-off; confirmation of this lies in the break of $74.86.

Futex View

We believe that there will be a period of consolidation in the market, this could either set up a level of support and a value area being built, but after such a sharp aggressive sell-off we do not support a bullish outlook. Instead we will be looking for the potential forming of a consolidation pattern break to act as sell trigger for a possible deeper dip.

Over the last five days the Bund has preformed well recovering a lot of the ground lost the previous week and creating a stronger technical position. The US Ten Year also performed strongly forming new 2010 highs last Friday. This week traders will be focussed on the latest rate decisions from the ECB and BOE as well as the jobs report on Friday.

 Thoughts from the trading floor

From a technical perspective the Bund recovered well last week reasserting that it is currently trading in a sideways range. To the upside daily resistance lies at 128.66, a level last tested on Friday, and above that there is a pivotal level at 129.55. If we were to see both of these prices taken out a re-test / break of the high would be likely (130.37) To the downside key support remains at 127.12 and below that at 126.26. The US Ten Year has outperformed the Bund in recent times and last week it achieved a new yearly high at 123.285. This coincides with a daily resistance level, if a strong break of here can be achieved bulls will look to push on to 124.270.

This week a lot of focus will be placed on the ECB and BOE. At this stage no-one expects the BOE to shock the markets, although assuming inflation remains contained further QE appears likely down the road. We are likely to see more from the ECB, as many traders look for an extension of the LTRO programme through year end. If we do not see the ECB move in this way the market will likely react negatively with a sharp rise in 3 month euribor  rates. A move that would provide the Bund with support.

In recent statements Fed Chairman Bernanke has stated his dis-satisfaction and concerns relating to the sustainability of the US economic recovery. These fears seem to be so great that many believe that they will move to extend the bond buying programme. Potentially this shift in policy could occur as soon as the next FOMC rate decision on 10^th August. This would of course be very bullish in the short term for the US Ten Year and by proxy the Bund. It is also worth considering that we may see bond traders place extra significance on this weeks payrolls number as unexpected weakness here may add further credence to a fast return to QE.

Important events this week.

• Wednesday: ADP Employment Change, ISM Non-Manufacturing US
• Thursday: BOE, ECB Rate Decision
• Friday: Change in Payrolls US

Bull View

Bulls will be keen to continue the upward momentum in the the US Ten Year and reassert themselves in the Bund. A poor payrolls figure this week would raise the likelihood of more QE in the US and would provide bulls with a large boost.

Bear View

Bears will be keen to gain some control as any selling at the moment appears to be met with a strong bounce. In the short term consolidation at the the current levels may be the best they can hope for.

Futex View

We remain bullish the Bund and the US Ten Year and expect that the jobs report on Friday will support this view. Therefore we think that  pull-backs continue to  provide good buying opportunities.